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FOMC Minutes Weigh on Market

Daily Analysis - 06/04/2017

US Dollar Tumbles Despite Central Bank Plans to Reduce Balance Sheet

Minutes from last FOMC meeting showed that further increases in the Federal Funds rate is likely alongside gradual balance sheet reduction. The US Dollar initially rose after the release of the latest meeting minutes before reversing in early trading alongside equities also ending last session in the red.

Fed Minutes Indicate Plans to Pare Back Balance Sheet

Most Federal Reserve policymakers reckon that as long as economic data remains firm, the US Central Bank should initiate steps to trim its $4.50 trillion balance sheet of assets this year. The minutes of the March 14-15 policy meeting, released late Wednesday, showed that committee voting members also had a broad-based discussion on whether to phase out reinvestment and rolling over of existing securities all at once.

After hiking the benchmark interest rate to a target range of between 0.75% and 1.00% in March, the Fed signalled that it remains on track to lift rates at least twice more this year. While the dollar was initially higher as financial markets digested plans to tighten monetary policy even further, the US currency has since found itself back on the retreat. Meanwhile S&P 500 futures are perched below 2350 ahead of payroll data due tomorrow.

Japanese Consumer Confidence Reaches 3-Year Peak

Consumer confidence in Japan edged higher to 43.9 in March from the upwardly revised 43.2 in February. Economists were expecting a figure around 43.5. Last month’s reading was the highest since September of 2013. All the components of the consumer confidence index gained in March on a month-over-month basis, with overall livelihood up 0.9 points to 42.7, while income growth went 0.70 points from the previous month to 42.2. Employment stood at 46.9, up 0.7 points, and the willingness to buy came in at 43.8, up 0.7 points.

In general, these results are viewed as positive, especially for inflation which has been a sticky subject for policymakers. Nevertheless, despite the growing sense of optimism towards the outlook, USDJPY remains under pressure after a brief kneejerk higher following the FOMC Meeting Minutes release, with the pair last seen trading near 110.500.

China Services Sector Growth Decelerates

In keeping with the trend since reaching a multi-year high back in December, activity in the Chinese services sector expanded at its weakest pace in six months, hurt by intensifying cost pressures and a tepid growth in new orders. After printing at 52.6 in February, the Caixin China services purchasing managers' index aggregated by Markit Economics continued its recent downward streak, sliding to 52.2 in March.

The index however managed to remain above the 50-mark that separates expansion from contraction. The survey of mostly small and medium-sized firms showed that activity fell to its lowest point since September of 2016.The latest data should come as a blow to Beijing, which was expecting the sector to help shoulder a greater share of economic growth momentum. Even with the immense pressure on the US dollar, the Yuan continues to slide, with USDCNH trending just shy of 6.8900.

Mexican Consumer Optimism Touches 3-Month High

Consumer confidence in Mexico jumped to 81.5 in March from the 78.1 recorded a month prior. It was the highest reading since December of 2016 amid the lessened rhetoric from the United States regarding trade policy. Among the important components of the consumer confidence index, the current assessment of the economic situation went up to 72.2 in March from 70.5 in February, while households’ financial position edged higher to 94.6 from 93.1.

In addition, expectations of the general situation in the country rose to 72.0 from 66.5 in March. The other notable gains were derived from domestic appliances purchases, which stood at 73.7 compared to 73.2, and household financial position, which came in at 93.6 versus 87.9 in February. USDMXN is showing strength in early morning trade, with the pair last seen below the strong resistance around 18.9260.

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